An Overview of the United States Tax Law

The implications of the United States tax which influence a US company which has undertakings abroad depends on whether the entity is a subsidiary or a branch. If a subsidiary, the income is accredited to the US parent if it is “effectively connected” with the US trade’s functional management. If the entity is a branch, that branch’s income would be included in the computation of the US parent’s gross income. Income which is not “effectively connected” would not be taxed unless the stocks in the company abroad are sold or until the earnings are sent back.

The implications of the United States tax which influence foreign subsidiaries or companies would depend on the whether the income of the foreign entity is “effectively connected”. For gains which are effectively connected, the tax is basically 30%. Otherwise, there is no tax. Portfolio interests are not taxed as well unless it is a restricted foreign company. As for the dividends paid by the foreign company, the beneficiary may be accountable but the foreign entity will not be taxed.

Non-citizens of the United States are the only individuals who are immune to US taxation. These individuals must have never been citizens, non-residents, and do not receive salary from a US source. All US citizens are subject to US taxation regardless of their place of residence and source of income. The amount of tax could be lessened down by personal services exemption and foreign tax credit. Resident aliens are also not immune to US taxation on worldwide income. Emigrant non-residents also subject to US taxation for up to a maximum of 10 years after the loss of his American citizenship. The amount of tax is generally 30%.